History runs in cycles. There are many cycles which overlap each other or run in harmony with each other. Humans have very limited options due to two main forces: the limits imposed on us by Mother Nature and the limitations of the human mind due to the way we evolved as a species. Nature’s cycles are much more dangerous, in the long run, than human cycles. For she operates on an life creation/life extinction cycle. Humans deal with this by alternately defying her mode of operation and usurping it. Life is full of contradictions and paradoxes, none deeper and more difficult to understand than this: as we struggle against Nature, we endanger ourselves, instead of conquering Nature, we replace Nature and try to annihilate ourselves.
This takes me to the business of economics: it is a microcosm for this process. It is full of the deepest psychological forces that engages our minds and the creations we make out of nothingness are very troublesome for us since we struggle in vain to control these things. I try to express all of this through mythological tales because this is the oldest tool humans used to describe the mental processes of our relationship with ‘wealth’ and ‘power’.
Perhaps this annoys people because the idea that we don’t control these mental/psychological/magical forces is scary for humans. But the lesson here: since we are genetically incapable of controlling these forces, we must put up mental barriers that discourage us from trying to manipulate these forces. There have been many attempts at this business of restrictions. One of the older and more successful such restrictions has been gold. Using gold as a restrictor has a downside: it is captive to the discovery of gold or the theft of gold via warfare. So it isn’t a peaceful solution to the problem, ‘How do we restrict credit creation?’
Another ancient method of restrictions was for the kings or lords or rulers to create guilds and trade fairs, or to grant control of a market in exchange for financial support of the ruler via fees, licenses, etc. Too much restrictions leads to economic stagnation and the systematic enslavement of the bulk of the population which, in turn, either weakens the State so it is prey to outside looters or internal revolutions and civil wars. Most history is about the struggle to find a clever balance where trade and economics ‘grow’ while not becoming fatal credit bubbles.
One thing is absolutely certain: the systematic looting of the lower working classes is a harbinger of economic collapse. When the working class is reduced to penury and hounded into being in debt more than a year’s wages, they lose economic power and an entire sector of a civilization vanishes as the working class no longer can participate in markets. Then, the destruction spreads to the middle class that needs the financial flows from the working class, to survive. Eventually, there is a huge spread between the elites and the rest of a civilization and it falls, often, very rapidly.
The ruling elites, if they wish to survive, must keep the working class capitalized. The minute they set into motion, a system whereby the working class no longer saves but instead, accumulates debts, we are on the downside of a civilization’s growth cycle. Below is a very long article by Dr. Fekete. He is a very intelligent man who is rejected by the bulk of economists in academia. He is an interesting person because he is not a hysteric like, say, Denninger, nor is he in lockstep with, say, the gold-buying community. He is, like myself, very interested in the the dynamics of the process of money creation and how interest rates operate over long arcs of history. His latest musings are important to try to grasp. I strongly suggest, reading his entire article.
Safe Haven | A Critique Of The Quantity Theory Of Money
Money out of the thin air?
Detractors of our fiat money system (myself not included) are fond of saying that “the Fed is creating money out of the thin air.” If that were true, then the Quantity Theory of Money (QTM) might be valid implying that the present runaway money-printing exercise would indeed lead to hyperinflation before long. How could anyone suggest that the denouement will be deflationary after all? I maintain that the Federal Reserve banks are not creating money out of the thin air. In fact, they must first post collateral with the Federal Reserve Agent (who is not under the jurisdiction of the Fed but under that of the government). Only after the collateral has been posted can they create a commensurate amount of Federal Reserve notes and deposits. Typically, the collateral is U.S. Treasury bills, notes, or bonds, purchased in the open market on behalf of the Fed’s Open Market Committee….
Banks make money out of thin air by creating loans often based on nearly no capital. But the Federal Reserve has to have some loans, too. And it does! These are the US government loans we need to pay for all the budget overruns. These overruns are the source of power for the Federal Reserve since the US government gave up the Constitutional powers for creating money. But this is a circular game: both the government and the private bankers get to feed each other. Over time, this has created vast seas of public as well as private debt.
This means that the regime of irredeemable currency, depending as it is on the open market operations of the Fed for its existence, imparts a definite bias to the interest rate structure establishing a falling trend, whereas interest rates would be stable in the absence of that regime. This in itself is a condemnation of irredeemable currencies as they introduce an unwarranted bias into the economy favoring debtors and spenders while punishing creditors and savers. In addition, it favors the financial sector at the expense of the producing sector. Falling interest rates, as opposed to low but stable ones, are detrimental to productive capital….
Ever since banking resumed in Lombardic Italy during the crusades, the issue of ‘usury’ versus ‘cheap lending’ has been a huge debate that has not been resolved at all. People longing to escape debts often think, falling interest rates will make them richer. The dynamics of falling rates have a number of paradoxes which are epidemic inside of economic systems due to these systems being based on ‘dark forces’ which are very much attached to the innermost chambers of the human mind and psyche.
Balancing the need to have credit so that domestic welfare can improve against the dangers of credit bubbles that lead to economic collapse is key to running any sane system. One with think, with centuries of detailed economic and banking data at our fingertips, this should be a breeze. Instead, it is nearly impossible. This is due to the human emotional state of being. We can’t help but do the wrong things. And the temptation to be bad grows greater and greater, the more successful the attempt at balancing things.
The fact goes virtually unrecognized that open market operations render bond speculation risk free. All the speculators have to do is to second-guess the Fed. They know that the Fed must be a net buyer. They know the identity of the agents the Fed is using to execute its purchase orders, and stalk them. Speculators study the same monetary statistics which the Fed itself is using to determine the timing of its open market purchases. Can the Fed outsmart speculators? Hardly. The Fed is run by bureaucrats and their trading losses are ‘on the house’. By contrast, the speculators risk their own fortune. They are certainly smart enough to detect false-carding on the part of the Fed. Even if we assume that they have no inside information (which is a rather naïve assumption), the speculators can easily front-run the Fed’s open market purchases.
Each and every ‘reform’ of the 20th century has created more and more ‘crooked’ markets. That is, the manipulations are now so grotesque, all the operator wishing for easy money have to do is go to secret meetings such as the Bilderberger group love-fests and there, glom onto any emerging news or intentions. This combination of secret meeting coupled with all the players socially knowing each other and above all, the outside players BRIBING everyone to cooperate: this is classic insider corruption leading to a collapse in real markets.
Instead, everyone plays a rigged game and this global casino has become so twisted, even the insiders are now being hammered with losses! This is a losing game, all around. The top players had to have the governments openly capitalize this game of chances.
The presence of risk-free bullish bond speculation imparts a huge additional bias to the economy, virtually guaranteeing a falling interest-rate structure, as demonstrated by the past quarter of a century, during which interest rates have been driven down from the high teens to close to zero. It may distort the ultimate outcome of this latest tragic experimentation with irredeemable currency. No longer can it be taken for granted that the denouement of unlimited money-creation will be hyperinflation with the Federal Reserve notes rapidly losing purchasing power. On the contrary, it could be an unprecedented deflation with the Federal Reserve notes being hoarded by the people, firms, and institutions as their purchasing power is actually increasing (in fact, they are already being hoarded by foreigners in the second and third world countries in unprecedented amounts). The dollar will not be the first among irredeemable currencies to be annihilated in this latest hecatomb of currencies. It will be last one.
I feel a compulsion to add to the many interesting comments by Dr. Fekete. For I agree with him: we are entering a depression cycle. After going through even more graphs yesterday, I decided that this is our greater danger. Hyperinflation may rage in two key areas: food and fuel. But then, this is a classic way that all elitist economies run: necessities shoot up in price while other things the working and middle class buys collapses in price. This is how we can get a depression coupled with very focused hyperinflation.
The way this works is very simple: before the collapse, a family may spend 20% of their income on food and fuel. After the working and middle class is decimated, they spend 25-30% of their income on food and fuel. A fatal rise. Before going to the inevitable charts and graphs, some news:
Banks in Georgia, North Carolina, Kansas Closed by Regulators – Bloomberg.com
Banks in Georgia, North Carolina and Kansas with total assets of $1.5 billion were closed yesterday, bringing this year’s tally of failures in the U.S. to 40 amid the highest unemployment in a quarter century.
Unlike in the Great Depression, the government deliberately waits until Friday evening to announce bankruptcies in the banking sector. So we now go looking for this data every week. The smaller, regional banks used to make less than 30% of all commercial business and commercial real estate loans. Since 2002, they made over 70% of these loans while the biggest banks focused nearly entirely on the Derivatives Swap markets.
The acquiring banks are taking over a combined $1.47 billion in assets, mostly loans, from the failed institutions, and signed agreements with the FDIC to share more than 80 percent of the losses with the government.
In other words, the taxpayers take nearly all losses! Will bankers be less risky in the future? Hell, why worry? They don’t get hammered when they screw up! The investors in the banks get screwed. But the loan system remains and continues to operate on the wrong track.
“The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector,” the FDIC said in each statement. “The agreement also is expected to minimize disruptions for loan customers.”
If we are taking the losses, then this isn’t ‘private’ at all. I say, nationalize all the failed banks and let us get some of the profits of the system. We can’t have this bizarre public/private business where the public takes the losses and the privateers get most of the profits via fees and other sweet heart arrangements.
Regulators this year have closed the most banks since 1993, as the loss of jobs contributes to mounting home foreclosures and loan delinquencies. The U.S. economy contracted at a 5.7 percent annual pace in the first quarter. More than a quarter of all states have unemployment rates higher than 10 percent, the Labor Department said yesterday.
Below is another commentator who sounds like me:
HoweStreet.com – The Source for Market Opinions
Bubbles and busts have now replaced the expansions and contractions common to early stage capitalism. We are now in late-stage capitalism, where debt instead of credit is the critical factor and the bond markets, not equity markets, determine the economic future.
The serial dotcom and US real estate bubbles so distorted the global demand and supply dynamic that memories of the 1930s depression have now been re-awakened, memories that will soon become reality as deflation spreads around the world.
Deflation arises in the wake of extraordinary speculative bubbles and is caused by a collapse in demand which happens after such bubbles pop, when producers/sellers chase buyers hoping to turn inventories and soon-to-be illiquid assets into cash in order to pay down ever-compounding debts.
Deflation happened in the 1930s in the US, in the 1990s in Japan and is now again spreading in the US, the UK, Japan and other overly mature late-stage capitalist economies; and akin to a deadly economic cancer, deflation, once metastasized, is exceedingly difficult to eliminate.
I am pleased I am not the only one who noticed that Japan’s depression is spreading like H1H1 viruses. Now, to some graphs which I altered:
T-Bill Troubles « Culture of Life News
I took the top graph, split it in half showing the rise in interest rates and then put this into a new time scale starting not in 1930 like the top graph, but 1980, the peak of the interest rate mountain. If we are reproducing the dynamics of this ‘wave’ then it means we are now entering a valley that could last more than 20 years before markets ‘recover’. The recovery will take a long time and the rise in ‘inflation’ will take a long time before it peaks again, in 2055.
To give perspective to this business, the Chinese 50 year plan was launched around 1982. And it is supposed to blossom in 2022. As we see in this graph, this is exactly at the end of my grey section here where I wrote, ‘Great Depression II and WWIII?’ The growth cycle following this period will hopefully feature the US growing again, under Pax China. That is, if we do not have WWIII. A really scary graph would be the time frame from the fall of Rome to the first Lombardy bank opening on a small bench in the town square, nearly 1,000 years later! That would be a tremendous, Great Depression.
This graph is in stark contrast to the upper two graphs. The consumer price index has been nearly 100% inflation and often, hockey stick-style inflation: faster and more accumulations of monetary losses. The inflation index shot up between the founding of the Federal Reserve and end of WWI. Then it was ruthlessly reduced from 1020 to 1948 and didn’t reach the WWI levels until after I was born in 1950.
This is NOT a wave graph. Yet. Will it be the Ultimate Peak graph? Will inflation not merely level off but return to 1920 levels? This would be a ‘Collapse of the Roman Empire’ sort of event where money ceases to exist. We see this in Zimbabwe. They have no central bank and their computer connection, which I was going to raid for data, has ceased to exist, I was one day too late [a lesson in timing things better!!!] I wish to go back to Dr. Fekete’s fine article:
Safe Haven | A Critique Of The Quantity Theory Of Money
Another way to understand the problem is through the marginal productivity of debt. This is the ratio of additional GDP to additional debt, or the amount of new GDP contributed by the creation of $1 in new debt. It is this ratio that determines the quality of total debt. Indeed, the higher the ratio, the more successful entrepreneurs are in increasing productivity, which is the only valid justification for going into debt in the first place. The concept is due to the Hungarian-born Chicago economist Melchior Palyi (1892-1970), although its name has been introduced after he died.
Ratios matter. Differentials matter. This is also the place where the bankers make their ‘real’ money. Not via handling money, but playing against these differentials and ratios! The greater the differences, the more money they make. So they are very biased towards a system that has yawning chasms between various aspects.
One sector they don’t care a whit about is the ‘marginal productivity of debt.’ This is a sector of supreme interest for capitalists trying to protect their capital! They need greater marginal productivity vis a vis any debts they must take on!
Palyi started watching this ratio in the United States in 1945. Initially it was 3 or higher, meaning that every dollar of new debt contracted contributed $3 to GDP. However, subsequently the ratio went into a decline and twenty years later it was around 1. Palyi ran a weekly column in The Commercial and Financial Chronicle entitled A Point of View. On January 2, 1969, he publicly warned president-elect Nixon in his column that the country is adding $2 in debt for every $1 increase in GDP (in other words, the marginal productivity of debt is ½)….
Basically, the US government should always side with the capitalist industrialists, the farmers and other producers, not the bankers. These people are in opposition to the bankers who want a totally different world compared to the productive parts of the system. Unfortunately for the US, our producers ended up siding with the bankers thanks to the offerings of lots of easy borrowing for take over games. In addition to the pirate community using the Japanese carry trade to capitalize raids in productive parts of our economy, of course.
The year 2006 was the watershed. Late in that year the marginal productivity of debt dropped below zero for the first time ever, switching on the red alert sign to warn of an imminent economic catastrophe. Indeed, in February, 2007, the risk of debt default as measured by the skyrocketing cost of CDS (credit default swaps) exploded and, as the saying goes, the rest is history.
And the US government is going about this ass-backwards. We are seeing our government pushing down wages and increasing free trade deals that steal US jobs and the overall productivity of our civilization is suffering internal collapse. We export a tremendous amount of stuff but import even more than we export, by far. And this is causing a productivity collapse since any improvements in our export industries simply vanishes into seas of red ink instead of strengthening our own domestic economy. More graphs from the Fed:
Industrial production more or less goes up and up. But capacity utilization, which is more attuned to the marginal productivity debt ratios, shows all peaks are lower than all previous peaks which means, it is in decline.
This is the most troubling of the graphs because it shows government instability has led to the overcapitalization of the Federal Reserve, itself! This lunacy has consequences. Forget all the goodies handed to the Fed in regulatory systems: the government overspending itself if feeding the Fed which, in turn, feeds the marginal productivity of debt ratio collapse to zero! We can’t bring that up unless we stop this government feeding of the Federal Reserve which, in turn, has to sell debts to investors. Which takes us back to the top of today’s story and Dr. Fekete’s remarks about hyper-debt cycles.
This graph is a mirror of the above graph: when the US government had a plunge in debt creation and then doubled debt creation, this caused a mirror up/down surge similar to what we see when there is an earthquake.
Stresses build in a system and then have a very sudden and catastrophic release and this has a harmonic nature to it: the up and down temblors nearly match in intensity. Another reason why we should consider economic data systems to be very similar to earthquakes. The above graph shows the equivalent of the Boxing Day catastrophic quake offshore in Indonesia that killed people many thousands of miles away.
And this is the final, troubling graph. We can accumulate public debt ONLY if we are also capitalizing the system so we can pay for an increasingly expensive empire. Instead, we are going along for a ride here. Not paying as we go despite the PAYGO silliness in a corrupt Congress.
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61 Comments
June 20, 2009 at 7:50 pm
Here is a staggering insight:
June 20, 2009 at 8:08 pm
leverage is rapidly gonna go out of style.
I have a better idea about insurance.
Way better than foolish derivatives living on the edge of flawed calculus.
You reap what you sow.
Simple.
June 20, 2009 at 8:08 pm
And I’ll say something else.
Peace.
The People choose.
Simple.
June 20, 2009 at 8:58 pm
Fiat Money In Death Throes
“Banking was conceived in iniquity and born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take away that power, and all the great fortunes like mine will disappear — as they ought to in order to make this a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, then let them continue to create deposits.”
Sir Joshua Stamp (1880-1941), one time governor of the Bank of England, in his Commencement Address at the University of Texas in 1927. Reportedly he was the second wealthiest individual in Britain.
http://www.professorfekete.com/
June 20, 2009 at 9:08 pm
Hey if – Mr. Stamp must of been most imformed.
Talk is cheap, but still, I like what he had to say. I think?
The fact though that he was the second wealthiest makes him suspect in my book.
Incidently, I like to spell “Texas” with a J.
Tejas.
Seems truer to me.
Peace if……if only, if only…….
June 20, 2009 at 9:09 pm
and for the fun of it if, you must understand.
I 2nd what you say!
June 20, 2009 at 11:37 pm
Nice graphs! I am intrigued that the T-bill market rate curve (TB3MS) peaked at about 15 percent around 1982. The average decline of the market rate after 1982 was twice as great as the average rise before 1982.
There are also other intriguing “coincidences” in your charts. The Consumers Price Index curve (CPIAUCNS) showed a distinct shift in its growth behavior around 1982. The CPI growth curve seems to have shifted from a rising exponential growth to slower linear growth around 1982. This smacks of manipulation.
The Industrial Capacity Utilization (TCU) curve was at its historical low of 72 percent around 1982. The new historical low of 68 percent occurred around 2008 and is moving lower. The third lowest was 74 in 2002. Typically the Industrial Capacity Utilization well exceeds 80 percent.
The Federal Surplus and Deficit curve (FYFSD) has been in deficit at least since 1964. This curve, on average, tends to be exponentially decreasing over time.But it also has an overlaying cyclic part. Take note that the point of maximum deficit (lowest value of the cycle) coincides quite accurately with the valleys in the Industrial Capacity Utilization curves, including the tiny valley in 1969.
So there it is. Some interesting “coincidences” related to your charts. Are there any historical factors involved here?
June 20, 2009 at 11:49 pm
Elaine, I am so happy that you have finally ‘gotten it’. You have published at last, the most illuminating piece Dr. Fekete has published. I am so happy I sent to you so many of his articles over the last years. He is unquestionably the brightest of lights [along with Henry C K Liu] writing about things economic and the political tie ins. You are doing a great work in disseminating this information to the public.
June 20, 2009 at 11:57 pm
I can’t thank you enough, Hardrock. Of course, for a long time, I have enjoyed reading him and in this case, feel a need to expand on what he is trying to say about the poison of declining interest rates RATIOS.
He, like myself, agrees that using a gold standard as the core of an international financial system is probably the only way to prevent things like the Japanese carry trade and gross US trade deficits.
June 21, 2009 at 12:45 am
from marketoracle:
What have we learned in the last 2000 years?
“The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.” — Cicero – 55 BC
Nothing….
June 21, 2009 at 1:06 am
[...] Dr. Fekete Talks About Bond Markets « Culture of Life News The acquiring banks are taking over a combined $1.47 billion in assets, mostly loans , from the failed institutions, and signed agreements with the FDIC to share more than 80 percent of the losses with the government. …. The above graph shows the equivalent of the Boxing Day catastrophic quake offshore in Indonesia that killed people many thousands of miles away. See the rest here: Dr. Fekete Talks About Bond Markets « Culture of Life News [...]
June 21, 2009 at 1:06 am
[...] Dr. Fekete Talks About Bond Markets « Culture of Life News The acquiring banks are taking over a combined $1.47 billion in assets, mostly loans , from the failed institutions, and signed agreements with the FDIC to share more than 80 percent of the losses with the government. …. The above graph shows the equivalent of the Boxing Day catastrophic quake offshore in Indonesia that killed people many thousands of miles away Here is the original post: Dr. Fekete Talks About Bond Markets « Culture of Life News [...]
June 21, 2009 at 2:30 am
Lou Mannheim: Bud… Bud I like you. Just remember something. Man looks in the abyss, there’s nothing staring back at him. At that moment man finds his character. And that is what keeps him out of the abyss.
Bud Fox: I think I understand.
Lou Mannheim: I don’t know where you get your information, but I don’t like it.
===========================
and staring into the abyss is what it is all about. good for you and good for me. try it. hahahhaha!
June 21, 2009 at 2:33 am
i’ve been slow playing life so far. and now that i finally have position, i am going all in. hah! meanwhile….
June 21, 2009 at 4:14 am
Mr Bill: “The Industrial Capacity Utilization (TCU) curve was at its historical low of 72 percent around 1982. The new historical low of 68 percent occurred around 2008 and is moving lower. The third lowest was 74 in 2002.”
1982: implementation of Reaganomics deficit spending
2002: start of post 9-11 deficit spending
2008: start of bailout deficit spending
deficit spending and credit bubbles to restart the economy and thwart depression.
June 21, 2009 at 4:40 am
Correct, Flash. They are turning points. At all turning points, we can either try to return to the screwed up status quo or we can go somewhere new. Usually, they try to get a status quo going again. Even if the long run, the 50 Year Plan, is a catastrophe.
June 21, 2009 at 7:00 am
You can insult Denninger all you want, however he puts his money by his words, which you do not do at all. He was successful at his computer enterprise and timed the sale correctly. He has been talking about the marginal productivity of debt for three years, a new concept here.
I have been very clear about the solutions that need to be adopted, in contraindication to winged hobbits and flying sugar wax lips.
1 Anything with a proprietary trading desk must be remutualized, and delisted from public exchanges.
1a Anything with a proprietary trading desk must remove itself from the number of accredited Treasury dealers.
1b Anything with a proprietary trading desk must withdraw prime brokerage services, entirely.
1c Anything with a proprietary trading desk must desist from any public pronouncement by its analysts. Analysis is in house for its prop desk, if they want to retain the staff.
1d Anything with a proprietary trading desk will desist from private banking, including the pre-allocation of Initial Public Offerings.
2 Anything that acts as a primary dealer for the Treasury must cease equity operations.
3 Any transactions of listed equities or debentures must take place on a public exchange.
4 Electronically Traded Funds and Notes must be delisted from public exchanges. Yes the SPOOS, the QQQQ’s and the DIAmonds. Proprietary commodity and equity indexes are delisted as well.
Got it? Or perhaps you want to leave the market discussions to those who have actually been in the market?
June 21, 2009 at 7:14 am
The DTCC must go under the control of Congress and audit by the GAO.
Any derivative instrument must be settled on a public exchange with a daily margin rebalancing.
Failures to deliver result in loss of seat at the exchange or participation in the dealer franchise on the NASDAQ, Bulletin Boards or the Pink Sheets.
That’s obvious though.
June 21, 2009 at 8:06 am
The Bond Saga: It Gets More Odd
http://tinyurl.com/n2t5g7
Can anyone make an educated guess what this
stuff out of a Tom Clancy novel will end up to?
June 21, 2009 at 8:09 am
“For the love of money is the root of all evils and in their eagerness to be reach some have wandered away from the faith and pierced themselves with many pains” (1 Tim, 6: 10). Philargyria, the love of money, the sin of avarice, the desire to have more than is enough.
June 21, 2009 at 10:45 am
@Simon:
So you think that money is the root of all evil. Have you ever asked what is the root of money? Money is a tool of exchange, which can’t exist unless there are goods produced, and there are men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must do so by trade, and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by men who produce. Is this what you consider evil?
One can read the rest here:
http://www.professorfekete.com/articles/AEFMonEcon101Lecture1.pdf
June 21, 2009 at 10:54 am
@Simon:
“Or do you mean that it’s the love of money that’s the root of all evil? To love a thing is to know and love its nature. To love money is to know and love the fact that money is the product of the best powers within you, and your pass-key to trade your effort for the efforts of the very best among men. It’s the person who would sell his soul for a nickel, who is the loudest in proclaiming his hatred of money – and he has good reason to hate it, too. The lovers of money are willing to work for it. They know that they deserve it. Let me give you this rule of thumb: the man who damns money has obtained it dishonorably; the man who respects it has earned it.”
June 21, 2009 at 11:48 am
“the root of all evils is avaritia, that is, wanting more than is enough. For avarice, which in Greek is called filargyria, a name whic echoes nuch better its derivation, should not be thought to consist in silver or coins alone (for, in former times coins were made of silver or, more frequently, a silver alloy), but in all things which are desired immoderately, whenever someone wants absolutely more than is enough” (The Blessed Augustin).
June 21, 2009 at 12:15 pm
CK, it was St Paul who condemned filargyria not Judas.
June 21, 2009 at 12:26 pm
Who defines enough?
Not really concerned with the condemnators, they exist in every moocher, in every era, under every ism and ology. The willing servants to the butchery and theft brigades, the renderers unto anyone and everyone with a bigger club or a smoother promise. Oh tithe to them, but funnily one can never tithe enough.
The ( singular ) root of all evils. Who has proven that there is only one root to all evils? If I had to pick a root, I would suggest fear as the best candidate for RootHood, Schizogod based Religion would be a close second.
June 21, 2009 at 12:40 pm
Es ist nichts schrecklicher als eine tätige Unwissenheit. Goethe
You know which one of you should take heed.
June 21, 2009 at 1:27 pm
No human operates on a psychological or mental system that has no limits. The limits may be ‘invisible’ but they are very much there. People who become too greedy, for example, end up wrecking everything in their vicinity. This is because greed, for example, taps into a very ancient part of the human brain that leads to eating your own babies, for example.
This is often why despotic families literally breed themselves out of existence. Starting a dynasty means the first members of it have to curb their greed and this is extremely hard to do which is why most genetic-based dynasties fail in less than 10 generations, often, in less than 3, once they unleash total lack of self-denial and self-control (watch ‘I, Claudius’ just for example!).
Pay Attention: you keep digging holes for yourself. I wonder why you have this compulsion. Do lay down on the couch and tell me your dreams. Analysis won’t harm you and might even surprise you a tad.
June 21, 2009 at 2:22 pm
me next, me next!
http://www.guardian.co.uk/business/2009/jun/21/goldman-sachs-bonus-payments
http://www.youtube.com/watch?v=H3wAarmPYKU
http://www.youtube.com/watch?v=55I1Roz0LBk
June 21, 2009 at 3:36 pm
““the root of all evils is avaritia…” I have to disagree. There are–and always have been– 7 deadly sins: Pride, Envy, Avarice, Sloth, Lechery, Anger and Greed. (Just call me Piers Plowman–HAHAHA) Our ruling elites are guilty of ALL of them. It’s why there have always been wars and revolutions. People who get abused by these sins eventually say no more. Marie Antoinette said, “Let them eat cake”–and we know what happened to her.
June 21, 2009 at 4:26 pm
From what I gathered, and please correct me if I am wrong, the premise behind this idea that we will run into deflation instead of hyperinflation is that the dollar will be hoarded and the last currency to collapse. I think that is a questionable premise. Maybe the dollar is being hoarded right now, which probably has mainly to do with the manufacturing nations trying to keep the value of it high, but that does not mean that this will continue to happen … especially considering how arrogant our rulers are. Those entities hoarding dollars, such as China, can use their dollar and T-bill supply as a weapon if our rulers continue acting like they not only rule us but also the rest of the world. The danger to the Chinese if they started lighting fire to the dollar is that that may blow up the whole system and throw the world economy into a death spiral, but that scenario assumes that a new system would not be put into its place. A backed currency could allow China to work around the corpse of the U.S. economy and give them the leverage to set up a new economic system and order.
I find it very hard to believe that the dollar will be the last currency to collapse. All it would take would be for China to go to a backed currency and then the dollar would very likely lose its reserve currency status and collapse relative to the yen. I have a very difficult time believing that the dollar will increase in value relative to the yen over anything but the short-term even in the absence of China going to a backed currency unless there is a revolution in China.
A hyperflationary depression is more likely IMO. That scenario should lead to a revolution in this country as revolution becomes a form of self-defense and the system is destroying too many people to control.
If I was a member of our ruling elite, I’d be trying to create instability within China. A people’s revolt in China is their best chance of maintaining their power relative to the rest of the world and walking away from this mess they created without paying a much heavier price for it.
Z
June 21, 2009 at 4:38 pm
Several matters here: China has us by the nuts. They basically control our currency. So does Japan. Both Asian giants want to continue the US buying spree.
Secondly: the US did try ripping China apart during the Olympics. This was done to Russia, too. Both attempts at fostering revolutions failed.
The US wants Iran to have a revolution. This is very dangerous since the US is going to have one, too, I would suggest. Not what our rulers want at all.
The US is a debtor nation. Dollars have been hoarded for years and years. First, Japan hoarded them up to nearly a trillion dollars in their FOREX holdings. Then China doubled this and is hoarding around $2 trillion. This is a massive problem for the US for China can choose, at the drop of a hat, to destroy the value of all dollars across the planet simply by dumping this monstrous hoard on top of world FX markets.
June 21, 2009 at 5:07 pm
Both Japan and China want us to continue our buying spree … for now. But that is conditional, especially in the case of China who is more ambitious than Japan and has the human capital to be so. For example … and I am not predicting this … if we would reach an agreement with Taiwan to put a military base in their country, we would likely see a decrease in China’s concern about maintaining our buying spree.
I believe that the arrogance and ambitions of our rulers will lead to a bumping of heads with China which will eventually lead to China not completely deferring to their interests in maintaining our current economic relationship with them. In other words, if our ruling elites push too far in their imperial ambitions, China will opt to bring about a quicker more abrupt demise of our power than the slow death they presently prefer. I have little faith in the humility of our rulers nor their common sense since they live such insulated lives. They have lost their sense of danger since they never pay any consequences for their mistakes.
I don’t think that our rulers will succeed in fostering a revolution in China, but that is one of their best shots at maintaining their level of power. Another is to blackmail the world with our military might, but you lose leverage on your threats when other countries with nuclear weapons can destroy you also.
Z
June 21, 2009 at 5:15 pm
The revolution is going to travel from Iran back to the US. We are overdue for one, anyway.
June 21, 2009 at 5:19 pm
China is paying for its resource buying spree with US dollars. No need to undermine the US dollar until after the Chinese have spent all the ones they have on hand buying real goods, real assets, real resources, and the occassional politician.
June 21, 2009 at 5:31 pm
“No need to undermine the US dollar until after the Chinese have spent all the ones they have on hand buying real goods, real assets, real resources, and the occassional politician.”
Spending dollars puts dollars into circulation though which ought to devalue them, so China has to try to slooowly leave the dollar game via the back door … not easy to do when you are lugging around 2 trillion of them.
China has a tight-rope balancing act to perform. But they have less distance to fall than us because they have the safety net of a manufacturing base.
One of their ruling elite’s greatest assets is also one of their greatest dangers: the one billion Chinese.
Z
June 21, 2009 at 7:50 pm
The Chinese have a bloody history since the European invasions began. So they are hardened in the Fires of History. We, on the other hand, are weak due to our last major war being about 150 years ago. WWI and WWII barely touched the vast majority of Americans. Unlike in Europe and Asia.
June 21, 2009 at 11:29 pm
The way this works is very simple: before the collapse, a family may spend 20% of their income on food and fuel. After the working and middle class is decimated, they spend 25-30% of their income on food and fuel. A fatal rise. Before going to the inevitable charts and graphs, some news:
.
could be that other things are over priced and those manipulations will bankrupt ‘2big2fail’ instatutions ‘bad investors in small government’… and up intil there a couple uh’ failed treasury sales the banks will save us all with our own tax dollars
.
http://www.youtube.com/watch?v=6RpbWShNlb8
.
aint’ uh’ hot’ potatoe’
June 21, 2009 at 11:44 pm
yeah so many folks are so “on the edge” financially-wise, that a 5-10% increase in essential items puts them simply speaking:
“over the edge”
We are at the precipice.
Of course, so many have already been “pushed” off the edge that they don’t give a flip about “us” and I don’t blame them. Just surviving day-to-day is all they can do.
Here is an idea out of nowhere – supply everyone with floss, listerine, and metamucil. Health cares cost worldwide will go down precipitiously. A great investment. Both short-term and long-term.
I think I should check out the Dr Fekete site, but I’m not sure I will. There is only so much time in the day. But bonds have a paper trail.
Study the fiat money if you want to get to the bottom of it. The info is out there. This is great site for that purpose (and many others also).
Peace,
ken
ps – I happened to read something today about some queen-lady who apparently has some sort of influence over social security – throughout all the “colonies”. Are we a colony are are we independent?
June 21, 2009 at 11:44 pm
Sorry – I tried to check for typos, but let me repeat a question.
Are we a colony or are we independent?
I know what I was taught in school.
Peace,
Ken
Hey Queenie – shove it!
June 22, 2009 at 12:12 am
Paul S: You are right, but you should have noticed that the phrases were quotations from Saint Paul.
June 22, 2009 at 6:17 am
About this:
“No longer can it be taken for granted that the denouement of unlimited money-creation will be hyperinflation with the Federal Reserve notes rapidly losing purchasing power. On the contrary, it could be an unprecedented deflation with the Federal Reserve notes being hoarded by the people, firms, and institutions as their purchasing power is actually increasing (in fact, they are already being hoarded by foreigners in the second and third world countries in unprecedented amounts). The dollar will not be the first among irredeemable currencies to be annihilated in this latest hecatomb of currencies. It will be last one.”
And how long do you think the creditors will allow this ? This is something i didn´t understand.
June 22, 2009 at 6:30 am
I just read what Z said , and i agree with him.
June 22, 2009 at 8:52 am
“China is paying for its resource buying spree with US dollars. No need to undermine the US dollar until after the Chinese have spent all the ones they have”
The U.S. has spent god knows how many trillian dollars on not subduing Iraq. If it were to cost China 2 trillian to successfully subdue the U.S., that would be relatively cheap.
In other words, even if the dollar were to cost them a bundle by crashing, it would be much cheaper than fighting a war.
June 22, 2009 at 10:50 am
@Z:
The dollars are already in circulation. Using money already in existence does not deflate it or inflate it. Creating new money with nothing to back it except the worthy promises of politicians, now that can lead to inflation or to hoarding.
China is quite happy to use American dollars already existing, to purchase assets in other countries; afterall the $ is still almost universally accepted. To buy Iranian oil, the Chinese may have to use their own currency, or Russian goods, or Malaysian rubber. But anything that an “ally and friend” of the USA has has a $ price tag.
June 22, 2009 at 4:57 pm
CK, a tremendous amount of US dollars are NOT circulating at all. Several trillion sits in FOREX holdings.
June 22, 2009 at 5:10 pm
CK,
But if the dollars are not being used, they are not being spent. They are not circulating, they are not changing hands. They are sitting in one place: some entity’s bank account or some country’s reserves. Then they are not actively involved in creating demand for goods and hence inflating the price of goods.
The creation of the money can still create inflation … and should still create inflation … but not as much as that money would if it was used to buy and bid up the price of goods. The way that it should still create inflation would be that the dollar should be devalued in the global currency markets compared to other currencies and then the goods that we buy from overseas should cost more. Mind you that this market correction mechanism is not always functional since other countries actively take measures to prop up our currency so that they can maintain their pricing advantage in exporting their manufactured goods.
Z
June 22, 2009 at 5:16 pm
In reference to my post above, a case could be made that money sitting in U.S. bank accounts does still contribute to inflation becoz due to our fractional banking system, the banks can loan out on that money … I think on a 10:1 ratio … so that money could be used to create other money that is spent.
Z
June 22, 2009 at 5:19 pm
Yes, this money being held globally certainly is at the root of the global credit bubble. The US created this monster due to our stupid free trade policies.
June 22, 2009 at 7:01 pm
Elaine, thanks for refering Dr. Fekete. Much of his work is archived at 321 gold. He and Douglas Gnazzo provide an advanced education in monetary theory. Money is a apparatus, tool, or device selected to transfer human labor and creativity through time and space. Methinks St. Paul has words put in his mouth by the scribes for the PTB to delude the flock from understanding money. It is easily manipulated when people are ignorant of money’s functions.
Fiat money serves the exchange function, but not the other three functions qualifying money as money. Money must serve as a measure of value, eternal and not infinitely elastic as is the Federal Reserve’s promises to pay. Money must serve as a store of value. USD has lost 70% during my working life. Money must serve as a standard of value, enabling the transfer of value through space, from Germany to Brazil for example.
The fiat money system, designed by the owners and lackeys of the Central Banking Cartel, is a looting device surrounded by deception and backed up by the violent force of the state which has made a deal with the Banking Cartel enriching and empowering both entities at the expense of normal working men and women, and their children for as far as we can see.
June 22, 2009 at 7:35 pm
bob k – yep.
Still – how far can we see?
You know if you have never seen a aero-plane in the sky and one buzzes by how can you really know what it is. No past experience with it and it is far away. Most likely you’d think it was “some sign of some sort”.
Regardless – bonds have a paper trail and best I can tell this story is approaching “rabbit hole” status, but it ain’t there yet. It is still fresh.
Peace,
Ken
* I hope we get to the bottom of this bond foolishness — the 134.5 B foolishness is what I’m referring to.
** I’m glad Glover won today!
June 22, 2009 at 8:59 pm
By the way what I read on Denninger today (link provided by someone else here) was incredibly informative.
I mean why were they let go if the bonds were fake?
June 22, 2009 at 9:01 pm
any why why why in this “internet age” do the US authorities NOT apparently have clear images of the supposed forgeries?
In fact, why haven’t they sent someone to take a look.
Does someone not want them to see?
Who knows, but to whom to the bonds belong?
Simple question.
June 22, 2009 at 9:03 pm
I think I know the answer.
My perception.
We all have it.
Peace.
June 23, 2009 at 10:32 am
So show me the law that says that China can not spend the dollars it has accumulated. FOREX is an accounting meme, it is not a prohibition on spending. It is money in an account, it has been circulated, it is circulating and it will circulate.
If the Chinese leave it stagnant in a ( really large and certainly not insured ) savings account. They lose purchasing power every day. So they spend it. Some of the FOREX gets spent on US govt securities as they are currently the least worst place to put scared money. Some of the FOREX gets spent on buying resources and some on buying earning assets located in other countries.
The thing folks call FOREX is merely an accounting entry on a nation’s balance sheet. That is why there are sovereign wealth funds, to spend the forex that a successful saving and producing ( non capitalist ) nation inevitably accumulates. Think of FOREX as National Profits, profits get spent. ( Of course if you do think of it that way, then the US FOREX is one huge negative number, what we in business call a LOSS).
June 23, 2009 at 10:44 am
@Z
I think you are confusing stock and flow, Balance sheet entry and flow of funds.
At any point in time one can draw a balance sheet for a country and say Country X has Y$ of FOREX.
Over time more $ will flow in and $ will flow out and a few months later a new, singular point in time balance sheet will show Country X now has Z$ of FOREX. And that Country X now owns 100% of a zinc mine in country A ( purchased with reserve currency $) and 50% of a nickle mine and mill in country C ( also purchased with $). What is scary is when even after all the spending of FOREX over a time period, at the next accounting point FOREX is larger than it was at the last time point.
It has bothered me for a while that the discussion here has continually treated FOREX dollars as though they were somehow qualitatively different from paycheck dollars or interest income dollars or net profit dollars.
June 23, 2009 at 12:35 pm
HUH? You make no sense. A FOREX reserve used to be very small, less than $60 billion for each major trade country. Suddenly, beginning with the Japanese depression, in the mid-1990’s, Japan’s FOREX dollar holdings (which held US dollars out of the circulation of money) began to shoot upwards to a trillion dollars in less than 10 years.
This meant, the Japanese withheld from circulation more US dollars than the entire world’s withholding of US dollars. This meant, the withholding of US dollars DOUBLED. Since then, many countries have done the same so if we compare the total withholding from 1994 with 2008, it is several trillion more than in the beginning.
THIS IS VERY SIGNIFICANT.
June 23, 2009 at 1:37 pm
I believe it is your contention that all those $ that the japanese saw flowing into their institutions, they immediately recycled as the ZIRP loans.
If they loaned them as ZIRPLs then they were not withdrawn from circulation.
The Japanese FOREX was loaned to middlemen who loaned it to Americans and other deserving bankrupts.
The Chinese FOREX is being spent on real assets, and being loaned to the US govt, and being used to buy resources.
A reserve is something held back for emergencies. Banks used to have to hold back 10cents on each 1$ deposit as reserves. I believe the current required level for US banks is 0 cents.
Price Inflation is supposed to be too many dollars in too many hands chasing too few goods.
There are not that many hands holding spendable dollars. The recent purchases by China of raw materials manufacturers show no sign of suffering from Price inflation. China being the only buyer with the dollars.
Try a thought experiment, concentrate all the printed $ into one person’s hands. There would be no price inflation would there?
Fewer people chasing goods, lower price for goods first, reduced production of goods follows over time. That poor canadian nickle company, no white knights with US $ to their rescue, eated by Chinese with US $. Or do you think the Canadian company took remembi in payment instead?
June 23, 2009 at 4:59 pm
The money is capital when it is held by profit centers. The FOREX holdings of Japan and China are profit centers. They can use this as the basis of lending, of course, which causes multiplication of funds which is why we had global inflation.
BUT as these loans go bad, the lending vanishes. But NOT THE FOREX RESERVES. They are very much there, still. Unlike lending, this is ‘capital’ and thus, can be dumped in other ways, we can’t ‘go bankrupt’ out of these funds since they are holdings, not loans.
The concept of ‘capital’ matters here: loans are FUTURE money while capital is PAST money. They have to be kept in balance. The loss of this balance endangers the monetary process. If both Japan and China give up on trying to invade our domestic markets, they can very suddenly flood the earth with trillions in trade dollars.
Not flood the world in the course of ten years or more. They can do this IN ONE HOUR. A very significant difference.
June 23, 2009 at 5:48 pm
If a loan goes completely uncollectable ( i.e. bad ) it is the PRINCIPAL that was loaned that is not coming back. The FOREX that the loan came from is diminished by the amount of principal loaned. If it is FOREX dollars held by Japan that were loaned, and they were loaned outside of Japan, the Japanese have little recourse.
FOREX is just dollars, held elsewhere than the USA, it is not capital until it is put to work.
Which means that the dollars are either circulated or lent or spent on earning assets.
Or at least in some cases, funnelled to the Madoff’s of the world for recycling. Given the rates he was paying on investments in his funds, there had to be a whole lot of JapZirp invested with him.
Real Assets are frozen labour. They are the past made real in the present. The Logan lathe in my basement was made by the labour of workers long dead working with steel and cast iron mined and smelted by miners and foundrymen longdead. And today it, a few rods of steel and an hour of my labour created a bit of WEALTH for me. Yesterday I didn’t use it so it created no wealth, but it was a real asset yesterday just as it was a real and producing asset today. There is no requirement for the amount of capital in existence to day to be in equilibrium with the amount of capital that will be needed tomorrow by a larger population with different proclivities and different standards than existed in some halcyon yesterday. Is the amount of capital needed today balanced by the amount of capital there was in 1909?
What exactly could japan and china flood the world with dollars for? Chinese trinkets in the hands of american spenders? Japanese hybrids on European roads? China is spending its forex on real things; Japan is attempting to reignite the ZIPR loans to have some place to move their forex. Both are subsidizing the USA at the moment because the continued subsidy allows them to transform their dollars into some other nations forex holdings. Canada’s $ forex went up by whatever amount of billions China paid in dollars for that nickle operation, Australia’s by however many millions of American dollars China used to buy its stake in the Zinc thing there.
I think what makes money so interesting is that it is such an illusion once it is divorced from any real asset. Here is a piece of paper that has a claim on something real. There is a similar piece of paper that has no claim on anything. Who in their right mind would accept that second piece of paper in return for the sweat of their brow or the cream of their brains? Here is a law, created by non-producers, requiring you to accept ONLY that second piece of paper in return for your labours and to remit only that second piece of paper in payment of the arbitrary tithes and fees the same non producers wrote out in yet another law; under penalty of imprisonment, or execution by FBI sharpshooter. Simple really. A nothing is more valuable than a something. But it does make sense, since it is the basis of democracy too. It is why I hold out a great deal of hopeful expectation for China over the next 50 or so years, I think they are working on creating a money that is actually also a something.
June 23, 2009 at 10:24 pm
If China wishes for us to never be able to buy any OPEC oil ever again, all they have to do is suddenly unleash all their ’savings’ on world energy markets.
What are we going to do then?
June 25, 2009 at 12:31 pm
Now why would China want to bankrupt the Oil Oligarchies that only accept dollars for oil?
Who do you mean by “we”?
Does your we mean what are you going to do and what am I going to do? I know that you already have reduced significantly your reliance on oil, and that you are not finished reducing your usage of it and its byproducts.
I have been doing likewise.
If by “we” you mean the entire population of the graphical entity known as the USA, or the entire population of the non-oil producing parts of the world, who knows what they will fantasize about doing and frankly who cares.